Case Summary (G.R. No. 171703)
Factual Background
In 1984, DBP and PNB foreclosed on MMIC and formed NMIC, owning 100% of its stock except five qualifying shares. NMIC contracted Hercon, Inc. in 1985 for mine stripping and road construction at ₱35.77 million. After credits and payments, an unpaid balance of ₱8.37 million remained. Hercon demanded payment; upon default, filed suit. DBP, PNB, and later APT were impleaded. NMIC, DBP, PNB, and APT interposed defenses including lack of privity, separate juridical personality, and absence of unqualified liability assumption by the National Government.
Trial Court Ruling on Veil Piercing
The RTC found that NMIC was a mere adjunct or alter ego of DBP and PNB, noting stock ownership and interlocked board composition. It pierced NMIC’s corporate veil, holding DBP and PNB solidarily liable with NMIC for principal, interest, and 25% attorney’s fees. The claim against APT was dismissed, but APT was directed to ensure compliance.
Court of Appeals Modification
The CA affirmed veil piercing and solidary liability of DBP, PNB, and APT (as successor PMO) with NMIC. It held that NMIC was owned, controlled, and operated by the banks, meriting disregard of its separate personality. It deleted attorney’s fees and reversed dismissal as to APT. Reconsideration motions were denied, prompting SC review.
Doctrine of Piercing the Corporate Veil
Under the 1987 Constitution and jurisprudence, a corporation possesses distinct legal personality and limited liability. Veil piercing is an exception applied cautiously when the corporate form is used to perpetrate fraud, illegality, or inequity. The alter ego or instrumentality doctrine requires proof of:
- Complete domination and control over finances, policy, and practice;
- Use of such control to commit fraud, violate legal duty, or impose injustice;
- A causal link between control‐based wrongdoing and injury to the claimant.
Application of Alter Ego Test to the Case
The SC held that mere majority share ownership and some common nominees do not establish the requisite domination of NMIC by DBP/PNB. There was no convincing evidence that the banks controlled NMIC’s policies or finances at
...continue readingCase Syllabus (G.R. No. 171703)
Facts and Background
- In 1984, DBP and PNB foreclosed on mortgages of Marinduque Mining and Industrial Corporation (MMIC) and, through their foreclosure, acquired MMIC’s assets.
- The banks organized Nonoc Mining and Industrial Corporation (NMIC), with DBP holding 57% and PNB 43% of its shares (except for five qualifying shares).
- As of September 1984, all five NMIC directors were nominees of DBP or PNB.
- In 1985 NMIC contracted Hercon, Inc. for stripping and road construction (contract price ₱35,770,120). Payments and credits left an unpaid balance of ₱8,370,934.74.
- Hercon, Inc. merged into Hydro Resources Contractors Corporation (HRCC), which amended the complaint to substitute HRCC for Hercon.
- Under Proclamation No. 50 (Dec. 8, 1986) and subsequent deeds of transfer (Feb. 27, 1987), DBP and PNB assigned NMIC-related assets and liabilities to the National Government and thence to the Asset Privatization Trust (APT) as trustee.
- The complaint was amended to include NMIC, DBP, PNB, and APT (later PMO) in Civil Case No. 15375 before RTC Makati, Branch 62.
Procedural History
- RTC Makati, Branch 62, November 6, 1995: Held NMIC an alter ego of DBP and PNB; pierced its corporate veil; rendered judgment for HRCC (₱8,370,934.74 + interest + 25% attorney’s fees) against NMIC, DBP, PNB; dismissed APT but directed it as trustee to ensure compliance.
- CA, November 30, 2004: Modified RTC decision—affirmed liability for ₱8,370,934.74 + interest; added APT/PMO as solidarily liable; deleted attorney’s fees; dismissed other claims and counterclaims.
- Motions for reconsideration by PNB, DBP, and APT were denied.
- HRCC’s petitions for review on certiorari under Rule 45 were consolidated in the Supreme Court.
Defenses and Counterclaims
- NMIC: no cause of action; contract unauthorized and disadvantageous; non-compliance with government contract rules; counterclaims for payments made, fees, equipment rental, parts replacement, and property damage.
- DBP: no privity; separate juridical personality; counterclaim for attorney’s fees.
- PNB: lack of cause of action; estoppel and laches; separate personality; counterclaims for moral damages and attorney’s fees.
- APT: lack of cause of action and privity; asserted government’s preferred lien on NMIC assets.
Issues on Certiorari
- Whether the corporate veil of NMIC could justifiably be pierced to